Posted by: bklunk | February 28, 2007

Yuan Undervalued Currency!

Nicholas Lardy’s Opinion « Beffa’s International Relations Blog

As I was doing some research for my wiki project, I came across an interesting article. The article Exchange Rate and Monetary Policy in China examines and criticizes China’s policy of controlling the value of its currency, the yuan. As Lardy explains China for the past thirty or so years has systematically devalued its own currency, but Lardy also points out that China’s current value that it gives its yuan is skewed and no where near the value that it should be at. Simular to the conclusions of the recent G-7 summit, Lardy feels that China should revalue its currency and allow it to come under the influences of market forces. Lardy also explains that China’s economic growth is directly tied to China’s valuing of the yuan, and because of this China’s credit growth was able to grow tremendously in 2003. The article states that China is able grow at the rate that it is because of the relatively new trend of credit growth and investment that China is now famous for. Lardy concludes that China refuses to allow its currency to fall under market forces in order to continue its current rate of growth. Ultimately though he feels this will lead to a massive undermining of China’s goals to continuously grow and develop. He suggests that China revalues its currency and draws measures against its credit trends. I thought the article was interesting enough and just thought I’d share what I found.

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